What Makes an HSA a “Triple Threat”?‍

HSAs are uniquely powerful tools with three major tax advantages:
1. Tax-deductible contributions (lowering your taxable income),
2. Tax-free growth on interest and investment earnings,
3. Tax-free withdrawals for qualified medical expenses.

This makes HSAs the only account that offers a “triple tax advantage,” a combination not found in traditional retirement savings vehicles. We plan with three types of tax buckets: taxable, tax-deferred, and tax-free. The HSA creates a new type of bucket I refer to as “tax never” by combining the tax-deferred and tax-free buckets into one.

A Growing but Underutilized Resource‍

With more employers offering high-deductible health plans (HDHPs), HSA availability continues to expand. But despite their advantages, HSAs remain underutilized. One major reason for underutilization is confusion with Flexible Spending Accounts (FSAs). While FSAs are “use it or lose it” accounts, HSAs are not. HSA balances roll over year to year and can be invested once a minimum cash threshold is met (often $1,000).

Tip: Once your HSA has enough to cover your annual deductible, consider investing any additional funds for long-term tax-free growth.

Working Past 65? Watch Out for Medicare Triggers‍

HSA eligibility ends once you enroll in any part of Medicare. This includes Part A, which is premium-free and automatically triggered if Social Security is claimed after full retirement age. If a client is planning to work past 65 and wants to keep contributing to their HSA, consider delaying both Social Security and Medicare enrollment.

Why HSAs Matter in Retirement‍

Healthcare costs remain a significant retirement expense. Fidelity’s most recent estimate (2023) suggests that a 65-year-old couple will need approximately $315,000 in today’s dollars to cover healthcare costs throughout retirement—not including long-term care. HSAs offer a unique way to cover those costs with tax-free dollars. After age 65, funds can also be used—tax and penalty-free—for Medicare premiums, long-term care insurance, and other eligible out-of-pocket medical expenses.

Final Thoughts‍

When discussing retirement strategy with clients, don’t overlook the HSA. Ask whether they’re enrolled in a high-deductible health plan and contributing to an HSA. If used wisely, HSAs are more than just a medical savings tool—they're a powerful component of a long-term, tax-efficient financial plan.

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^{Sources:- Plan Sponsor Council of America (PSCA) 2024 HSA Survey - Fidelity Investments, Retiree Health Care Cost Estimate, 2023- IRS Contribution Limits for 2025}